Signals #26 – Alternative Assets Overview

This is the 4th and final report in the Signals – Alternative Assets series.

Alternative Assets is a big market. When we set out to understand it a month ago, we weren’t expecting to find so many different nuggets of information and opportunities. In this special issue, we’re no longer distinguishing between Pro and non-Pro and instead focusing on our leanings in the past month.

What are Alternative Assets?

  • Alternative Assets are simply assets that are not stocks, bonds, or cash. This includes everything from real estate 🏠 to trading cards 🎴 to NFTs 🎨 to vintage cars 🚗 and more.
  • Conventional assets (stocks, bonds, funds) are heavily influenced by the markets 🏛️ with values constantly fluctuating. They can also become overpriced, locking out retail investors.
  • Alternative assets have different fundamental assumptions: rarity. The demand for these assets increases while the supply decreases. The values of alternative assets rise slowly but steadily. 📈
  • Some of the biggest gains in recent memory have been through alternative assets such as NFTs (+500x) and trading cards (+35x).
  • BlackRock, the world’s largest asset manager with $9 trillion in assets under management, plays in the alternative asset market!

Why invest in Alternative Assets?

  • From a financial perspective, alternative assets present some of the best investment opportunities that are accessible to average people not working in financial industries. Value is based on rarity rather than obtuse terms like credit swaps and options trading.
  • From a cultural standpoint, alternative assets are a chance to own a piece of culture and history. Whether it’s the classic car produced by Ford or the trading cards by Topp, they are unique milestones in automobile and sports history.
  • From a personal standpoint, alternative assets are also a key to advancement. Whether it’s the house in the right neighborhood, the car that gives an excuse to attend meetups, or the NFT that secures an invite to a group with other owners, alternative assets help in building networks and making new connections.
  • Alternative assets are also an extremely safe bet given a long enough time horizon. While companies may go bankrupt and leave their stock worthless, alternative assets have an inherent value that rarely depletes completely.
  • Alternative assets are also a small but rapidly growing market. With niches that are truly underexplored, these assets also represent an opportunity for an entrepreneur to build tools and companies to facilitate transactions.

What are some of the biggest opportunities?

  • Education and content – With the recent attention shed on alternative assets, the supporters in each market are bifurcated with a small minority of experts and a large base of newcomers. That provides the opportunity to create educational content in each niche and build an audience. Even in an subject like NFTs, there are very few guides to help new buyers or sellers understand the market end to end.
  • Index funds – The best part about alternative assets is that some can grow 10 to 100x overnight. The not-so-great part is that there are only a few cases of such growth in each market. Fractional ownership can allow investors to have a diversified portfolio that takes advantage of the biggest gains without going all-in on a single asset.
  • Marketplace – Surprisingly, in most alternative asset markets (with the exception of NFTs and a few others), no specialized peer-to-peer marketplaces exist. To sell a sports card, the options are to sell local, eBay, or to an institutional collector. There’s a huge opportunity in unbundling these transactions from eBay and leveraging both sales data and user experience to attract users.
  • Bots – With demand and supply relatively low in each alternative asset market, there exist inefficiencies. Using bots to buy low and sell high can be an incredible opportunity. For reference, see Poshmark and sneaker bots!
  • Consulting – Help companies and asset managers build out their portfolios in various alternative asset markets. Start by establishing yourself as an expert through content and then reach out to new funds and offer your services. Start with small projects and gradually build your way up.

Cases of success in Alternative Assets?

  • One of the most popular newsletters in the world right now talks about Bitcoin and only Bitcoin. At $50/month and with ~5000 paying subscribers, that’s $25k/month every month.
  • Rally, a platform that allows fractional investing, just raised $17mm last year and has over 200,000 users. And their growth doesn’t seem to be stopping anytime soon with most new assets being purchased in a matter of days or weeks.
  • In the NFT market, companies like OpenseaRarible, and Showtime have paved the way to building marketplaces. Of them, Rarible saw a $14.2mm series A, Opensea had a $23mm raise, and Showtime a $7.8mm seed.
  • Solesavy, a private community for sneaker enthusiasts, raised a $2mm seed round and does over $1.5mm in arr, entirely off memberships and affiliate revenue. The combination of content + community has been enough to launch an incredible company.
  • For baseball card bots, Scottbot costs ~$140/year, Swift $50, and Eve at $300. With thousands of followers each, the market is clearly there and these bots are creating solid income for their owners.

How to get started in Alternative Assets?

  • Start by picking a niche and understanding the market. Learn more about the intricacies of the market and start to make mental notes on how each factor impacts the valuation of the asset. Document your learnings and even publish them to build an audience. ✍️
  • Become a collector. Treat it like any other investment and develop a strategy. Start small and gradually build up your collection, along with your audience.
  • Decide what opportunity to pursue within the market. Whether it’s creating a bot or starting a marketplace, choose a path and leverage existing audiences/knowledge to jump-start initial users.
  • Build relationships with buyers. The supply in alternative assets is usually uniform whereas the makeup of buyers can differ greatly over time. Understand the needs of buyers in the market and cater to them.
  • Focus on details, especially aesthetic ones. In alternative assets, aesthetics are why some items are sold while others languish. See examples such as Rally compared to its competitors and focus on delivering the best user experience possible.